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Output-volatility reducing effect of automatic stabilizers: Evidence from nine EMU member states

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  • Şen, Hüseyin
  • Kaya, Ayşe

Abstract

In this paper, we explore the output-volatility reducing role of automatic stabilizers in the nine EMU member states comprising Austria, Finland, France, Germany, Ireland, Italy, Portugal, the Netherlands, and Spain for the period 1995-2017. Overall, the empirical results obtained by using the Pooled Mean Group estimator proposed by Pesaran et al. (1999) suggest that automatic stabilizers deliver a significant counter-effect on output volatility measured by the real GDP per capita volatility in the short run. More specifically, output-volatility responses to automatic stabilizers by a reduction between -1.2 and -9.7 percentage points depending on the proxy measure used for automatic stabilizers. However, the output-volatility reducing effect of automatic stabilizers is statistically insignificant in the long run. The results support the view that automatic stabilizers are an important fiscal mechanism for the short-run output stabilization, but their output-volatility offsetting role is largely subject to what the proxy measures are used for automatic stabilizers.

Suggested Citation

  • Şen, Hüseyin & Kaya, Ayşe, 2019. "Output-volatility reducing effect of automatic stabilizers: Evidence from nine EMU member states," EconStor Preprints 206687, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:206687
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    More about this item

    Keywords

    Automatic stabilizers; Fiscal policy; PMG estimator; EMU member states;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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